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Healing the Budget

Hospitals are (almost) like businesses. They need to generate revenue to stay afloat. How do they do that? More and more they rely on additional revenue streams

By Deborah Jeanne Sergeant

For many years, hospital and healthcare providers’ reimbursement has been declining.

According to Statista, hospital revenue source by payor in March 2020 was Medicare (21.8%), Medicaid (12.8%) and private or self-pay (66.5%).

Private/self-pay patients pay 1.4 times the average hospital operating cost and Medicare, at 0.881 and Medicaid at 0.868 pay less.

Bottom line: Medicaid and Medicare, which pay low rates, comprise together 34% of visits to hospital, which is a sizable chunk. Only 66% of hospitals’ patient visits are from patients with the higher-paying insurance companies or paying in full out-of-pocket.

It’s little wonder hospitals need to seek revenue from other sources.

Healthcare Leadership Council reports on its website that the number of doctors not accepting Medicare patients has doubled since 2009. Currently, 81% of family doctors will accept seniors on Medicare, down from 83% a decade ago.

The COVID-19 pandemic has exacerbated the issue as providers have poured money into additional PPE and equipment like heart monitors, oxygen monitors and ventilators, setting up additional triage or patient beds specific to COVID-19 patients and treating uninsured or under-insured patients for COVID-19 — with sometimes a long and costly recovery time.

Earlier during the pandemic, elective and nonemergency procedures were delayed. Normally, these are top moneymakers for healthcare providers, so canceling or delaying appointments further undermines providers’ budgets.

To weather financial storms like this, many healthcare providers have developed revenue streams not directly related to their main mission. For some healthcare organizations, patient care is far from lucrative. They have established urgent cares throughout the area, they created day-surgical centers and other ways to increase revenue.

“Many hospitals actually make their profits away from the bedside,” said Edward Yoo, director of strategic research at New York State Nurses Association in New York City. “In fact, if you look at a hospital’s operations, a lot of the time they will be at best breaking even when it comes to their patient care operations. The non-patient revenues for many providers make up the difference.”

While it seems strange that an organization loses money while performing their main function, healthcare providers’ reimbursements have become so low that offering more than healthcare is the only way that many providers can stay solvent.

Some providers have begun offering services to well patients, such as a physical therapy office selling memberships to former patients to use their equipment for general fitness, like a gym.

The website reports that healthcare providers are engaging in moneymakers like investing in healthcare startups or venture funds. In fact, this kind of investment jumped 304% between 2009 and 2015.

The site also referenced out-patient pharmacies, which can garner a profit margin of up to 15%. Upstate Medical University maintains an out-patient pharmacy, for example.

“It could also include investments in financial instruments, real estate holdings for rent or lease, supply chain, and for-profit subsidiaries that could control all of the above,” Yoo said. “All this trend shows is that hospitals and health care providers in the current market-based paradigm will always be concerned about revenue and solvency first and then will consider the ramifications to patient care.”

At first glance, focusing on the bottom line seems uncaring; however, the ability to continue to provide care relies upon staying in the black.

Meredith Price, corporate financial officer at St. Joseph’s Hospital Health Center, said that the organization has a variety of ways to shave down costs and increase its revenue.

“Some ways that St. Joseph’s makes money in addition to providing direct patient care include owning a parking garage and charging visitors for parking, owning property and leasing it to other medical providers, and operating a coffee shop and café,” Price said.

Eight years ago, St. Joseph’s Health invested $15 million in a cogeneration energy plant on the hospital campus. Completed in 2014, the plant services the hospital and reduced its energy expenses by $1 million its first full year of operation.

“We are now looking to enhance that investment to allow us to sell energy back to National Grid,” Price said.

For some organizations, expanding their care to include an ancillary service not only makes financial sense but also improves patient care. Syracuse Orthopedic Specialists (SOS) added a physical therapy department six year ago.

Todd Cardi, physical therapist, had been operating Salt City Physical Therapy in Syracuse until SOS tapped him to join a new physical therapy department, along with physical therapists from two other independent practices. Cardi heads the orthopedic and sports therapy department at SOS.

Cardi said that the additional revenue was not as motivating as the concept of “bringing physical therapy into the house and complementing the SOS continuum of care.”

By increasing the pool of patients seen by the physical therapists, they can focus on their specialty. Cardi, for example, treats only shoulders, which he believes allows him to offer optimal care for patients with shoulder injuries.

“In the past six years, we’ve decreased our stay in physical therapy — from evaluation to discharge. We have decreased care visits per patient.”

He also believes that it provides a team approach to healthcare in that he works with the surgeons closely on each case.

Of course, patients may choose a non-SOS physical therapist. Cardi said that about 75% of his patients are in-house referrals and the rest come from primary care providers or other outside referrals.

“It’s been a win on all sides,” Cardi said. “It’s better care for patients, improved outcomes, less cost to patients and the insurance companies and it’s been great for our doctors to have another set of professionals to facilitate good outcomes.”

As uncertain times continue, healthcare providers will likely continue to develop creative ways to keep their organizations operational.